The Big Read in short: Telco big boys in trouble
With mobile revenues set to decline at a steeper rate for at least two more years, shareholder values and the jobs of many telco workers here could take a hit.
Each week, TODAY’s long-running Big Read series delves into the trends and issues that matter. This week, we look at the upheaval in the telco industry which analysts say could lead to the exit of one of the big players. This is a shortened version of the feature, which can be found here.
SINGAPORE — In the three years since mobile virtual network operators (MVNOs) entered the market, the number of telcos in Singapore has ballooned from three to 11 today — and counting.
The price war from the increased competition has seen profits of the three big telcos — Singtel, StarHub and M1 — erode away.
Right now, Singapore consumers are enjoying a variety of telco offerings at low prices like never before.
But with mobile revenues set to decline at a steeper rate for at least two more years, shareholder values and the jobs of many telco workers here could take a hit.
Unlike the main telcos, MVNOs do not own and operate any network infrastructure and have to lease it from either Singtel, M1 or StarHub at a cost.
By all accounts, the industry is now rife with talk of market consolidation — the question is whether all the three incumbents will be spared the chopping block.
How did the big boys, who had enjoyed years of profits in a nearly monopolistic market in the past, arrive at this stage?
The answer, analysts tell TODAY, is a complicated one marked by missteps and mistimed opportunities in the telcos’ efforts to transform themselves, and also because Singaporeans are now less willing to pay for data as before.
CHANGING CONSUMER PREFERENCES
Singapore has a high mobile population penetration rate of around 150 per cent, highlighting how gadget-crazy Singaporeans are as each person, on average, owns multiple devices. This strong demand for devices and data has propped up the telco industry in previous years.
But the advent of cheaper plans — offered by MVNOs and the traditional telcos — has sensitised Singaporeans to paying less for their data fix.
The average revenue per user (ARPU) across the industry has declined since 2016. On a year-on-year basis, average post-paid ARPU in Singapore fell by 3 per cent in 2016 and 4 per cent the following year, while for pre-paid, ARPU fell 7 per cent and 5 per cent in 2016 and 2017 respectively.
Phillip Securities Research analyst Alvin Chia said that telcos can no longer monetise data as they did in the past, when people were willing to pay high fees for premium plans that offered more data. Today, nearly every telco offers affordable unlimited data plans.
Off-contract and SIM-only plans have also whittled down the dominance of the two-year post-paid contract model in Singapore, partly due to the influx of high performance phones from Chinese manufacturers at a lower cost. These phones reduce the attractiveness of two-year subsidised handset plans.
As a result, Mr Terence Koh, UOB head of telecommunications, media and technology, said the mass market is likely to shift towards SIM-only plans. Post-paid plans will still be in demand from those who want premium mobile phones.
RISE OF THE MVNOs
While these consumer trends had been around for a while, it was the arrival of the first MVNOs in 2016 that triggered the price war. But the irony is that the incumbent telcos were the ones which allowed MVNOs to enter to defend themselves against TPG’s arrival this year.
To date, there are seven MVNOs in the market. TODAY understands that another MVNO will be announced soon.
Ms Janice Chong, director of Asia Pacific corporates ratings at Fitch Research, said by crowding out the market with MVNOs offering cheaper plans, TPG would be hard-pressed to gain a foothold in Singapore if its selling point is to offer low-price plans. Telcos would also benefit from the MVNOs’ wholesale revenues.
But as a strategy to undercut the competition, MVNOs are a double-edged sword too. Their lean cost structures allow them to reach out to market segments that the incumbent telcos could not. Mr Oo Gin Lee, founder of technology-focused public relations agency Gloo PR, said it soon became “a proxy war”, with telcos using the MVNOs leasing their bandwidths to grab market share while watching from a distance.
BIG BOYS FIGHT BACK — TOO LITTLE, TOO LATE?
In response to the MVNOs, the three main telcos hatched plans that resembled the cost structures and consumer services that MVNOs offered. Singtel and StarHub launched their own digital telcos Gomo and Giga in March and May respectively, while M1 consolidated its plans in end-May.
One analyst said these efforts came a little too late: “In hindsight, if the telcos could rewrite history, they should not have introduced MVNOs so early. But someone jumped the gun way before TPG could get off the ground.”
StarHub began its S$25 million restructuring exercise in October last year, laying off 300 full-time workers in a one-off exercise to improve productivity and lower operating expenditure. StarHub had employed around 2,500 staff.
Singtel is also seeking to lower its operational expenditure of S$490 million in the last financial year. Its group chief financial officer Lim Cheng Cheng has told investors that “a large part will come from the rightsizing through staff optimisation”, as well as looking at other costs.
Not much is known of M1’s plans. The telco was delisted from the Singapore Exchange in April after it was bought out by Konnectivity, a joint venture between Keppel Corporation and Singapore Press Holdings, and the company said it will “devise a multi-pronged strategy of innovation, technology adoption, and digitisation, to better meet the needs of its customers".
Mr Chia said that the telcos have been laggards in their digitalisation efforts: “It is quite an irony that the telcos, which have been leading tech disruptions across the economy and have been helping enterprises go digital and are at the forefront of digitalisation, are being disrupted themselves.”
JURY STILL OUT ON DIVERSIFICATION EFFORTS
DBS strategist Dylan Cheang reiterated that telcos and utilities firms no longer enjoy “monopoly-like status”. New digital services, such as Skype, Apple’s Facetime and Tencent’s WeChat, are also offering more attractive and innovative communication services, he added.
The main telcos have tried to diversify into new growth areas in the digital economy while maintaining their core business as an infrastructure and network provider. Singtel’s overseas units, such as its Optus division in Australia, have performed well and helped offset the weakness in Singapore.
StarHub has also made a push into cybersecurity and Pay TV, though the latter have seen shrinking revenues owing to disruption by Netflix in 2016. This shows that diversification is no silver bullet as they take time to pay off and have their own risks too, said analysts.
M1 is the least diversified of the three major telcos, with a large majority of its business coming from mobile services.
WHAT THE FUTURE HOLDS: CONSOLIDATION AND THE 5G HURDLE
The intense competition created by the MVNOs and TPG’s impending launch would likely push the industry towards consolidation in the next three years, analysts from credit rating agency Moody's warned in January.
Mr Chia said Singapore’s small market does not allow 11 operators now, and most countries can accommodate up to three telcos, which would allow for healthy competition.
Analysts also noted that consolidation will coincide with the impending rollout of the ultra fast fifth-generation (5G) telecommunications network in Singapore, which is another obstacle for telcos given the sizeable capital expenditure, or capex, needed.
In an ongoing IMDA consultation on 5G, the regulator has proposed to allow network sharing of “at least two” nationwide 5G networks.
But there is not enough consumer- and enterprise-use cases in Singapore to justify more than two networks, said experts.
